It’s been a brutal start to 2022 for investors who have been conditioned to believe that markets only move higher. That said, as fear begins to take hold, there are undervalued stocks out there that present excellent buying opportunities.
I’m looking at stocks that are getting bullish sentiment from analysts and being backed up by revenue and earnings growth.
In 2020, the pandemic sell-off created an opportunity in some quality stocks that suffered a significant drop as investors fled to safety. Today, investors aren’t leaving the market, but they are actively seeking value and that means looking for stocks with a high upside based on solid fundamentals.
It’s too early to tell whether the current correction in the markets is the beginning of something bigger or just a normal part of the investing cycle. But it’s not too early to start looking at some of these undervalued stocks to add to your portfolio.
- Disney (NYSE:DIS)
- Match (NASDAQ:MTCH)
- Enphase Energy (NASDAQ:ENPH)
- Generac Holdings (NYSE:GNRC)
- T-Mobile (NASDAQ:TMUS)
- Southwest Airlines (NYSE:LUV)
- PayPal (NASDAQ:PYPL)
Undervalued Stocks to Buy: Disney (DIS)
One consideration I have when looking at undervalued stocks is if I would feel comfortable holding it even when the short-term stock price performance looks bearish. And if you owned shares in Disney prior to the pandemic, you can relate to that sentiment. The DIS stock price has been like a ride on Space Mountain and as of this writing, it’s down about 10% in 2022, and you’re not even getting a dividend.
So why am I bullish? Simply put, my belief is that Disney is a “whole is greater than the sum of its parts” stock. The problem for bulls like myself is that it’s taken a lot longer to get the company firing on all cylinders. The question going forward is whether that’s a question of if or when. I’m betting on the idea that it’s only a matter of time.
Analysts give Disney stock a consensus 12-month price target of $191.25, a 37% increase from its current price and higher than the 28% average gain in the stock over the last 10 years.
At three different occasions in 2021, bullish investors got their heart broken as Match reached all-time highs only to be rebuffed. This latest dip, which started in October has been the most severe.
However, in the last two weeks of March, MTCH stock is bouncing off its 52-week low. Investors are left to wonder if the rally will continue.
Analysts give MTCH stock a consensus price target that puts the stock 37% higher than its current price. However, the question investors should ask is why? It’s not enough to simply suggest that people will be ready to start dating.
My perception is that singles who wanted to mingle have been doing so for some time. I believe the bullish case for Match comes down to marketing. Because Match encompasses many different “brands” including Tinder, Hinge, and OKCupid in addition to its namesake Match.com, the company has the potential to get a significant percentage of the monthly active users on dating apps. A number that Goldman Sachs (NYSE:GS) believes will increase between now and 2025.
Undervalued Stocks to Buy: Enphase Energy (ENPH)
In the spring of 2021, I was bullish on solar stocks in general. And the solar stock that stood out to me in the sector was Enphase Energy. However, after hitting an all-time high in mid-November, ENPH stock dropped 57% and was trading near its 52-week low. But since then, the stock has made back all those gains and then some. But with analysts giving the stock an 11% upside, I still believe it merits inclusion on this list of undervalued stocks.
The reason for my bullish outlook on Enphase is the company’s microinverter technology. This addresses a key limitation of solar power by converting direct current power from solar panels to alternating current power. In addition to allowing efficient use of solar energy in the evening and on cloudy days, it also reduces the possibility of a single point failure. The company also has international expansion plans.
My InvestorPlace colleague Larry Ramer has a differing view on the valuation of Enphase Energy. I’d encourage you to read that article as part of your due diligence.
Generac Holdings (GNRC)
Prior to its February earnings report, GNRC stock had dropped nearly 50% from its 52-week high.
After Generac beat on both the top and bottom lines the stock has stabilized and even posted a modest gain.
At $312.33 per share at the time of this writing, GNRC stock is down significantly from its price of over $500 a share prior to the sell-off. However, with a consensus price target of $466.69, analysts believe Generac will recover all of its recent losses. And that’s another reason why it makes this list of undervalued stocks.
A key reason for that is revenue that continues to increase on a sequential and a year-over-year basis. Adding strength to that number, the company stated in its last earnings report that demand for its home standby generators continues to exceed supply. And the company has a backlog of projects of over $1 billion.
Undervalued Stocks to Buy: T-Mobile (TMUS)
The 5G rollout has been one of the growth stories in 2021 that will continue to be a story in 2022. But you’ll forgive TMUS shareholders if they feel left out of the party. Over the last 12 months, T-Mobile stock dropped approximately 20%. However, at the moment it’s posting a slight gain.
That flies in the face of the company’s revenue which posted full-year revenue that was 17% higher year-over-year. But investors may be concerned that growth appears to be slowing. In the prior quarter, T-Mobile missed on its top-line number and showed a slow-down from the prior quarter. However, it did manage to turn that around in the last quarter, posting revenue of $20.79 billion that made it a clean sweep with every quarter in 2021 beating the prior year’s quarter.
And management is projecting a compound annual growth rate (CAGR) of 45% from 2021 to 2024. If that’s the case, and the company continues to generate strong free cash flow, it would suggest that there will be significant potential shareholder value.
That’s a view that is supported by the analyst community which gives TMUS stock a consensus 12-month price target of $160.14 which is 26% higher than its current price.
Southwest Airlines (LUV)
There’s no question that investing in airline stocks has not been for the faint of heart. The pandemic continues to challenge air travel in some ways that were expected and others that were unforeseen.
However, if the rapid spread of the omicron variant of Covid-19 truly signals the beginning of the end then it may be time to look at Southwest Airlines.
The company’s revenue has been recovering although it’s not yet to pre-pandemic levels. But the vast majority of the airlines revenue comes from domestic flights. And, with a focus on leisure travel it removes short-term concern over when business travel will resume.
Plus, even prior to the pandemic, Southwest had one of the strongest balance sheets among the major carriers. With $17 billion of liquidity, it’s reasonable to expect that the company may get back to profitability in 2022.
All of that gives support to the analysts who give the stock a 21% upside from its current price.
Undervalued Stocks to Buy: PayPal (PYPL)
The last of my undervalued stocks is PayPal. Shareholders in the fintech giant have, perhaps uncomfortably, watched PYPL stock drop over 60% from the all-time high it reached in July 2021. However, I struggle to understand why. The move to a cashless society is well underway and PayPal has been on the front lines of that battle since its origin.
And then there’s this. Jamie Dimon, the CEO of JPMorgan Chase (NYSE:JPM) says that fintech represents a significant threat to traditional banks. Hearing a statement like that is reason alone to consider the stock of a company that is the unquestioned leader in peer-to-peer payments.
I suppose some investors may be turned off by a slowing growth rate. But as I see it, that’s more than offset by growing earnings and free cash flow. And PayPal is well positioned to take advantage of the e-commerce trend which will only continue to grow in 2022.
Analysts give PYPL stock a consensus 12- month price target of $202.24. If that’s an accurate forecast, the stock has an upside of over 70%.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.